Indian Markets are expected to open flat tracking flat to positive opening in SGX Nifty. Most of the Asian markets are closed today on the occasion of Lunar New year.

US markets rebounded on Thursday as investors welcomed data showing a robust pace of growth in the economy in the final quarter of last year along with some upbeat earnings news. A report from the Commerce Department showed that US GDP increased by 3.2% in the fourth quarter compared, in-line with estimates. The report also mentioned that the growth in consumer spending accelerated to 3.3% in the fourth quarter from 2.0% in the third quarter. The increase reflected the fastest growth since the fourth quarter of 2010. Meanwhile, a separate report released by the Labor Department showed that initial jobless claims increased by more than expected in the week ended January 25 to 348,000.

On domestic front, the Indian markets fell for a fifth straight session on Thursday after the US Federal Reserve announced a second US$10bn reduction in its monthly bond purchases and a private sector survey showed China's manufacturing activity contracted for the first time in six months in January.

Markets Today

The trend deciding level for the day is 20,457 / 6,061 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,570 - 20,641 / 6,095 - 6,117 levels. However, if NIFTY trades below 20,457 / 6,061 levels for the first half-an-hour of trade then it may correct 20,385 - 20,272 / 6,040 - 6,006 levels.

India's Cabinet clears raising subsidized cylinder from 9 to 12

The Cabinet Committee on Economic Affairs (CCEA) have raised subsidised LPG (liquefied petroleum gas) cylinder quota from 9 to 12 per household per year. This is likely to increase fuel subsidy burden by Rs.5,000cr. As per the media reports, 89% of the 15cr LPG consumers use up to 9 cylinders in a year. Overall subsidy burden on Oil Marketing Companies/government/ upstream companies is likely to increase by only 2-3%. The increase in under-recoveries for upstream companies (ONGC, GAIL) is unlikely to be significant due to this. Hence, we maintain our estimates.

RBI releases framework on revitalizing distressed asset in the economy

RBI has released a framework on revitalizing distressed assets in the economy, wherein it has incentivized early identification of problem account, timely restructuring of viable accounts, and prompt action for recovery/sale of unviable accounts. This framework will be fully effective from April 1, 2014. These measures are broadly aimed at helping banks to recover bad debts earlier, so as to ease the financial stress on bank's books. To begin with the framework requires centralized reporting and dissemination of information on large credit, early formation of lenders committee to timely agree on a resolution plan which would result in better regulatory treatment of assets in question. If they fail to reach a resolution plan timely, those assets will require accelerated provisioning.

The framework also envisages an improvement in the current restructuring process, by including measures such as independent evaluation of large value restructuring with a focus on viable plans and fair sharing of losses (and possible future upside) between promoters and creditors. It also suggests increasing incremental borrowing costs for non-cooperative borrowers. As far as the asset sales is concerned, the framework provides for more liberal treatment by allowing spreading of loss on asset sale, by not considering takeout financing as restructuring and by encouraging leveraged buyouts of stressed entities by specialized entities. Overall, the measures are aimed at improving current stress recognition and recovery process, by incentivizing banks to do so early. In our view, over a medium-to-long term these measures would be beneficial for the sector.

Result Review

Hero MotoCorp (CMP: Rs.2,000/ TP: -/ Upside: -)

Hero MotoCorp (HMCL) reported lower-than-expected results on the bottom-line front led by EBITDA margin pressures due to unfavorable currency movement and also due to increase in advertising and promotional expenses.

The top-line recorded a growth of 11.1% yoy to Rs.6,877cr, in-line with our estimates of Rs.6,869cr, led by 6.9% yoy growth in volumes and 4.2% yoy growth in net average realization. On a sequential basis, top-line surged strongly by 20.1% led by the festival demand which witnessed a 18.7% growth in volumes. While motorcycle sales grew 6.1% yoy; scooters sales maintained its strong momentum and witnessed a growth of 13.2% yoy during the quarter. Exports growth remained weak due to weakness in the global markets and posted a decline of 26.5% yoy. Led by a strong volume growth in the domestic motorcycle segment, the company recovered some lost market share which stood at 52.8% in 3QFY2014 as against 48.7% in 2QFY2014 and 51.9% in 3QFY2013. EBITDA margins during the quarter declined sharply by ~150bp qoq to 13.1%, which was lower than our estimates of 13.9%, due to adverse impact of the unfavorable currency movement and also due to significant increase in other expenditure. While unfavorable currency movement impacted the raw-material cost, which as a percentage of sales increased 120bp qoq; other expenditure increased 29.4% qoq due to increase in royalty payment on newer models (following increase in volumes) and also on account of the increase in advertising and promotional expenses due to the festival season and increase in competition. On a yoy basis though EBITDA margins improved 47bp primarily led by the favorable exchange rate impact. Due to lower-than-expected operating performance, net profit came in lower than expected at Rs.525cr; however, it registered a healthy growth of 7.5% yoy (9% qoq). At the CMP, the stock is trading at 13.4x FY2015E earnings. We maintain our Accumulate rating on the stock; our target price though is under review.

Jyoti Structures (CMP: Rs.28/ TP: -/ Upside: -)

For 3QFY2014, Jyoti Structures top-line and bottom-line performance were below our estimates. Top-line grew by 6.9% yoy to Rs.663cr (our estimate of Rs.698cr). On the operating front, EBITDA came in flat yoy at Rs.62cr (our estimate of Rs.66cr) while OPM contracted by 73bp yoy to 9.4%. Interest cost remains at elevated levels, increasing 4.0% yoy to Rs.40cr. The delay in payments has elongated working capital cycle, leading to higher interest due to working capital borrowings. Consequently, the company reported sluggish growth of 3.5% yoy in net profit to Rs.14cr (our estimate of Rs.16cr). We maintain our Neutral recommendation on the stock.

Relaxo Footwear (CMP: Rs.234/ TP: Rs.250 / Upside: 7%)

Relaxo reported a strong set of numbers for 3QFY2014. The revenue for the quarter grew by 16.2% yoy and stood at Rs.259cr, against our expectation of Rs.248cr. The operating margin for the quarter expanded by 236bp on yoy basis and came in at 10.8%, ahead of our estimate of 9.6%, mainly because of lower than expected employee cost. Tax for the quarter stood at Rs.5cr (31.3% of PBT). As a result, the net profit for the quarter came in at Rs.11cr, 74.5% higher yoy and inline with our estimate.

We remain positive on the company with the growth triggers in place, which includes - 1) sufficient capacity expansion, 2) improving sales mix and 3) increasing brand visibility. At Rs.234, the stock is trading at 17.8x FY2015E earnings. We continue to recommend Accumulate rating on the stock with a revised target price of Rs.250, based on a target PE of 19x for FY2015E.

Result Preview

PNB (CMP: Rs.518/ TP: Rs.725/ Upside: 40%)

PNB is scheduled to announce its 3QFY2014 results today. We expect the bank to report moderate NII growth of 11.0% yoy to Rs.4,143cr. Non-interest income is expected to de-grow by 3.8% to Rs.933cr. Operating expenses are expected to increase by 17.5% yoy to Rs.2,376cr, which would result in flattish operating profit at Rs.2,701. Provisioning expenses for bank are expected to increase by 31.0% yoy; net profit is expected to decrease by 5.2% yoy at Rs.1,238cr. At the CMP, the stock trades at valuations of 0.5x FY2015E ABV. We maintain our Buy recommendation on the stock.

Motherson Sumi Systems (CMP: Rs.180/ TP: Rs.218/ Upside: 21%)

Motherson Sumi Systems (MSS) is scheduled to announce its 3QFY2014 results today. We expect MSS to post a strong set of results yet again driven by improving utilization levels at the new facilities and also due to INR depreciation. On a consolidated front, we expect the top-line to post a strong growth of ~14% yoy (~5% qoq) to Rs.7,610cr driven primarily by ~20% and ~13% yoy growth in Samvardhana Motherson Reflectec (SMR) and Peguform revenues respectively. We expect EBITDA margins to improve ~230bp yoy to 9.9%, aided by better utilization levels and also due to cost control initiatives. The adjusted net profit therefore is expected to register a strong growth of ~81% yoy (~18% qoq) to Rs.302cr. At the CMP, the stock is trading at 13.2x FY2015E earnings. Currently, we have a Buy rating on the stock with a target price of Rs.218.

Marico (CMP: Rs.211/ TP: Rs.254/ Upside: 20.4%)

Marico is expected to declare its 3QFY2014 results today. We expect the top-line to grow by 7.6% yoy to Rs.1,252cr. OPM is expected to increase by 48bp yoy to 14.4%. Bottom-line is expected to increase by 11.5% yoy to Rs.114cr. We maintain a Buy on the stock with a target priced of Rs.254.

Canara Bank (CMP: Rs.216 / TP: Rs.266 / Upside: 23.3%)

Canara Bank is scheduled to announce its 3QFY2014 results today. We expect the bank to report NII growth of 12.7% yoy at Rs.2,240cr. Non-interest income is expected to de-grow by 13.3% yoy to Rs.733cr. Operating expenses are expected to grow by 17.2% yoy to Rs.1,545cr, which would result in 5.8% yoy de-growth in preoperating profit to Rs.1,428cr. Provision expenses are expected to be flat yoy. Overall we expect the bank to report earnings de-growth of 10.1% yoy to Rs.639cr. At CMP, the stock trades at valuations of 0.4x FY2015E ABV. We recommend Buy recommendation on the stock, with a target price of Rs.266.

IDBI Bank (CMP: Rs.55/ TP:-/ Upside: -)

IDBI Bank is slated to announce its 3QFY2014 results tomorrow. We expect the bank to report a healthy Net Interest Income (NII) growth of 10.1% yoy to Rs.1,556cr. Non-interest income is expected to de-grow by 17.0% yoy at Rs.722cr. Operating expenses of the bank are expected to be higher by 10.2% yoy to Rs.805cr. The provisioning expense for the bank is expected to be largely flat yoy at Rs.979cr yoy. Overall Net Profit for bank is expected to de-grow by 13.6% yoy to Rs.360cr. The stock is currently trading at a valuation of 0.4x P/ABV FY2015E. We retain our Neutral rating on the stock.

Union Bank (CMP: Rs.104 / TP: Rs.133/ Upside: 27.9%)

Union Bank is scheduled to announce its 3QFY2014 results today. The NII for the bank is expected to grow moderate by 6.8% yoy at Rs.2,020cr. Non-interest income is expected de-grow by 6.8% yoy to Rs.596cr. Operating expenses are expected to increase by 14.2% yoy to Rs.1,339cr, resulting in pre-provisioning profits de-growth of 5.9% yoy to Rs.1,278. Provisioning expenses are expected to be largely flat. Overall, Net profit is expected to de-grow by 4.2% yoy to Rs.290cr. At CMP, stock trades at 0.4x FY2015E P/ABV. Hence, we maintain our Buy recommendation on the stock.

Oriental Bank of Commerce (CMP: Rs.168/ TP: -/ Upside: -)

Oriental Bank of Commerce is scheduled to announce its 3QFY2014 results today. We expect the bank to report moderate NII growth of 9.3% yoy to Rs.1,317cr. Noninterest income is expected to decline by 8.3% yoy to Rs.347cr. Operating expenses are expected to increase by 18.8% yoy to Rs.779cr. Provisioning expenses are expected to de-grow by 25.8% yoy to Rs.448cr. Overall Net profit is expected to remain flat yoy at Rs.327cr. At the CMP, the stock is trading at 0.4x FY201 5E ABV. We maintain our Neutral recommendation on the stock.

Syndicate Bank (CMP: Rs.79 / TP: -/ Upside: -)

Syndicate Bank is slated to announce its 3QFY2014 results today. We expect the bank to report a Net Interest Income (NII) growth of 2.7% yoy to Rs.1,437cr. Noninterest income is expected to be largely flat at Rs.275cr. Operating expenses of the bank are expected to increase by 5.5% yoy at Rs.849cr. Provisioning expenses are expected to de-grow by 29.4% yoy to Rs.374cr. Overall Net Profit is expected to decline by 23.1% yoy to Rs.391cr. At the CMP, the stock trades at a valuation of 0.4x FY2015E ABV. We maintain our Neutral recommendation on the stock.

IRB Infra (CMP: Rs.73 / TP: Rs.112 / Upside: 53%)

IRB Infrastructure Developers (IRB) is expected to post a mixed performance for the quarter. We expect E&C segment revenues to decline by 9.2% yoy to Rs.605cr, as Jaipur-Deoli and Tumkur-Chitradurga road BOT projects are near completion (~95% complete) and hence, will contribute meagerly to E&C revenue. However, the BOT segment is expected to report a healthy 20.0% yoy growth to Rs.337cr, leading to a modest top-line growth of 3.0% to Rs.941cr. We expect the blended EBITDA margin to be at 45.0%, a growth of 36bp yoy. Depreciation for the quarter is expected to jump by 17.4% yoy, owing to commissioning of the Jaipur-Deoli and Talegaon- Amravati projects. We project net profit before tax and after tax (post minority interest) at Rs.153cr and Rs.102cr, respectively, after factoring a blended tax rate of 34% for the quarter. We recommend Buy on the stock with target price of Rs.112.